4 ms·

>Secondly, they're adding trading volume, not liquidity. It was never hard to actually sell or buy a stock before HFT. They're not cutting down on spreads (that

>Secondly, they're adding trading volume, not liquidity. It was never hard to actually sell or buy a stock before HFT. They're not cutting down on spreads (that's what market makers do - and HFT is NOT market making). Can we start distinguishing technology from strategies? HFT is the technology of inserting/amending/deleting orders extremely quickly in an exchange. There are many different financial institutions that use this with different strategies. Some are good, some are not so good. Market Makers almost all use HFT, they have to provide the best prices and update them as fast as possible when market conditions change to stay competitive. (Spacial) arbitrage is another strategy that requires HFT and is important to make markets more efficient. > HFT is basically legalized front running. Again, there are no relation between front running and HFT. Front running applies to brockers that use knowledge of their client's investments to make money for themselves. They might do that with or without HFT. Acting faster than a competitor on price change is not front running.

crdoconnor 13y ago
>Again, there are no relation between front running and HFT. >Front running applies to brockers that use knowledge of >their client's investments to make money for themselves. And HFT operators effectively gain knowledge of the investments of the rest of the market by placing frequent, small orders (or placing an order and then canceling it). They then use the knowledge they've gained by seeing how the market responds to their bids. Front running the way a broker does it is illegal. The way an HFT does it legal. It's the same principle and has the same damaging effect on the markets.
- mmaldacker 13y ago
  Most exchanges have public order books (i.e. available to everyone), so the information you gain with those small orders is also gained by everyone else; that's not front running.
  - crdoconnor 13y ago
    >the information you gain with those small orders is also gained by everyone else I'm not certain how long before the information is made public (seconds if you pay? minutes if you don't...), but I'm absolutely certain it'd be too late for anybody else to make use of it.
    - mmaldacker 13y ago
      It's available within microseconds/milliseconds (not including time to travel over the network to wherever you are compared to the exchange's datacentre). It's made available to everyone at the same time (again, if you have a shitty connection, you'll get the information later). You use the exact same system whether you're a bank, investor, broker, hedge fund, ... The only difference is how close you are to the datacentre, how good your networking is, how optimized your trading applications are, which protocol you're using, etc.
      - jules 13y ago
        The fact that technically, the information may be available at exactly the same time to everybody doesn't make it right (and is it really, or does the guy who initiated it get the info just a bit earlier?). What's happening is that you have a whole industry spinning its wheels to be just a little bit ahead of everybody else. This is a zero sum game. Either the other traders have to build the same kind of extremely fast systems which is just money wasting, or the high frequency traders get to skim off their profit. This is of no benefit to anybody except the high frequency traders, hence why this law was invented.
    - yummyfajitas 13y ago
      Everyone who pays for DMA is on the same multicast feed.

crdoconnor 13y ago

>Again, there are no relation between front running and HFT. >Front running applies to brockers that use knowledge of >their client's investments to make money for themselves. And HFT operators effectively gain knowledge of the investments of the rest of the market by placing frequent, small orders (or placing an order and then canceling it). They then use the knowledge they've gained by seeing how the market responds to their bids. Front running the way a broker does it is illegal. The way an HFT does it legal. It's the same principle and has the same damaging effect on the markets.

mmaldacker 13y ago
Most exchanges have public order books (i.e. available to everyone), so the information you gain with those small orders is also gained by everyone else; that's not front running.
- crdoconnor 13y ago
  >the information you gain with those small orders is also gained by everyone else I'm not certain how long before the information is made public (seconds if you pay? minutes if you don't...), but I'm absolutely certain it'd be too late for anybody else to make use of it.
  - mmaldacker 13y ago
    It's available within microseconds/milliseconds (not including time to travel over the network to wherever you are compared to the exchange's datacentre). It's made available to everyone at the same time (again, if you have a shitty connection, you'll get the information later). You use the exact same system whether you're a bank, investor, broker, hedge fund, ... The only difference is how close you are to the datacentre, how good your networking is, how optimized your trading applications are, which protocol you're using, etc.
    - jules 13y ago
      The fact that technically, the information may be available at exactly the same time to everybody doesn't make it right (and is it really, or does the guy who initiated it get the info just a bit earlier?). What's happening is that you have a whole industry spinning its wheels to be just a little bit ahead of everybody else. This is a zero sum game. Either the other traders have to build the same kind of extremely fast systems which is just money wasting, or the high frequency traders get to skim off their profit. This is of no benefit to anybody except the high frequency traders, hence why this law was invented.
  - yummyfajitas 13y ago
    Everyone who pays for DMA is on the same multicast feed.